Put: Gabryella Mendes | Best Investment

Market and government agents are joining forces to boost mortgage lending in the coming years, seeking new sources of funding. This movement occurs amidst the realization that savings, the main source of mortgage financing, are not expected to recover after withdrawals of more than R$200 billion in the last three years.

Market and government agents are joining forces to boost mortgage lending in the coming years, seeking new sources of funding. This movement occurs amidst the realization that... savingsThe main source of real estate financing is not expected to recover after withdrawals of more than R$ 200 billion in the last three years. Without alternatives, there is a risk that credit will become scarcer and more expensive.

Mortgage lending, which represented 21% of Gross Domestic Product (GDP) in the early 2000s, grew to 101% in 2015, but has not increased further since. Part of this earlier growth was driven by legal tools, such as fiduciary alienation and segregated assets, which increased the security of banks when lending money, allowing them to take collateral in case of default.

The current focus is on finding mechanisms that can keep this credit accessible and stimulate the market.

The growth of mortgage lending in Brazil was also driven by the Minha Casa, Minha Vida (MCMV) program, which uses subsidized resources from the Guarantee Fund for Length of Service (FGTS) to facilitate homeownership financing for low-income families. However, after this period of growth, the share of mortgage lending in GDP stagnated, impacted by factors such as the high interest rate environment and the depletion of savings resources.

Marina Gontijo, a partner at the consulting firm Oliver Wyman, commented that although credit has grown significantly over the past decade, it has remained stable, fluctuating between 91% and 101% of GDP. 

It is worth highlighting that Oliver Wyman conducted a study of the sector at the request of the Brazilian Association of Real Estate Credit and Savings Entities (Abecip), which revealed that Brazil lags behind other similar economies in terms of the share of real estate credit in GDP.

In this scenario, Brazil, with a 10% share, lags behind countries such as Mexico (11%), India (12%), South Africa (18%), China (18%), Italy (23%), Chile (30%), and Singapore (32%). 

"It's important to observe these countries, whose economies are similar to Brazil's, but with much more developed mortgage markets," Gontijo pointed out.

The main reason for this divergence is clear: high interest rates in Brazil make mortgage financing more expensive for buyers compared to other countries. The reason banks apply these high rates is due to the high cost of raising the funds that support these loans. "With a lower funding cost, banks could offer more competitive rates," said the consulting firm's partner.

Average mortgage financing rate

It is important to emphasize that the average mortgage financing rate in Brazil is currently at 11.7%, with the following composition: 8% referring to the cost of money raised (savings and market instruments), 1.2% due to the risk of default, 0.9% corresponding to taxes and charges, 0.6% for administrative expenses and 1% of the banks' operating profit margin.

This cost could be even higher if savings accounts, which have returns controlled by regulation, did not contribute to fundraising. However, savings accounts have been losing ground as a source of funding, and there is no prospect of recovery.

The Oliver Wyman study pointed to alternatives for revitalizing mortgage lending, such as improving instruments like Real Estate Credit Notes (LCI), Real Estate Receivables Certificates (CRIs), and Guaranteed Real Estate Notes (LIGs). 

"We need to ensure that these instruments are attractive to both investors and issuers," said Gontijo.

Another suggestion would be to introduce a fee for borrowers who make early repayments on their loans, a common practice in several countries such as Chile, South Africa, Turkey, the United States, and Canada. This would help offset the revenue loss that banks face when loan agreements are terminated early.

Sandro Gamba, president of Abecip, emphasized that the association's focus will be on facilitating the transition from traditional funding sources, such as savings accounts and the FGTS (Brazilian employee severance fund), to alternative instruments like LCIs (Real Estate Credit Bills), LIGs (Real Estate Credit Bills), and CRIs (Real Estate Receivables Certificates). "We are in a transition phase, and it has become clear that we will not have a single solution. The agenda will involve several improvement measures," he concluded.